Home Insurance vs Renters Insurance

Homeowners insurance and renters insurance both provide financial protection against property damage, legal liability costs, medical payments for others and the costs of living away from home. The core difference lies in the types of property damage covered.

Homeowners insurance is for people who own their home or apartment. It covers both personal belongings and the home's structure. Renters insurance is bought by tenants. It covers damage to or theft of personal property, but not damage to the building itself.

What differs between renters insurance and home insurance?

The primary difference between homeowners and renters insurance is that only home insurance policies include dwelling coverage. Otherwise, the policies are essentially the same, so you wouldn't need both renters and homeowners insurance to cover the same residence.

Homeowners insurance has five core coverages: dwelling, personal property, personal liability, additional living expenses and medical payments. Renters insurance has all of those features but the first, making it basically a cheap home insurance for tenants.

What do renters and homeowners insurance actually cover?

Both homeowners and renters insurance provide financial protection against damage caused by sudden or unexpected events. The events covered — also called perils — can differ but are similar across insurance companies. When a peril damages your property, you can file a claim. If your claim is accepted, the insurance company will pay to repair or replace the damaged items (minus your chosen deductible).

Dwelling coverage: Only included with homeowners insurance

"Dwelling" refers to the structure of a home. Dwelling coverage relates to physical damage to the home itself (walls, roof, floors, doors and other parts of the structure). If you own a home or condo, you'll need either home insurance or condo insurance to protect yourself against the cost of these events. Renters insurance policies do not include dwelling coverage, as tenants are not responsible for damage to the building that is out of their control.

Most homeowners insurance policies cover a standard set of common perils for the dwelling. Wind and hail are among the most common causes of damage, while fire and lightning are two of the most expensive.

Whether these perils are covered depends on the kind of policy. HO-3 policies, the most common type sold by insurance companies, generally cover all of these perils, but a more limited policy, such as an HO-1, covers fewer.

However, some specific perils are almost always excluded from home insurance dwelling coverage, most notably floods and earthquakes. If you have what's called an open-peril policy, these exclusions need to be named. If you have a named-peril policy, all perils not explicitly stated as covered will be excluded from dwelling coverage.

Both homeowners and renters insurance include personal property, personal liability, additional living expenses and medical payments coverage

Four types of coverage are included in both homeowners and renters insurance. They operate the same way.

Personal property coverage: Both homeowners and renters insurance policies cover damage to or theft of personal property, which can be anything from clothes to furniture and televisions. When you buy homeowners insurance, personal property coverage may be set as a percentage of your dwelling coverage by default — such as 50% — but can generally be adjusted before your purchase.

When you buy renters insurance, selecting your personal property coverage is the most important part. It is the main feature and biggest driver of the policy's price.

Like dwelling coverage, personal property coverage does not cover all perils. Many of the same common exclusions in dwelling coverage, such as floods and earthquakes, will apply here also. Both homeowners and tenants should also be aware that certain high-value items may have a sublimit and be covered differently from more common items.

Personal liability coverage: Homeowners and renters policies both include liability coverage, protecting you from the legal repercussions of causing bodily injury to someone or property damage. Suppose someone sues you for accidentally spilling hot coffee on their lap. You'd be covered for the legal costs of defending yourself and money awarded in legal proceedings. Both homeowners and renters insurance policies default to $100,000 in personal liability coverage, but limits can usually be raised at minimal cost.

Additional living expenses (ALE) coverage: Also referred to as loss of use coverage, ALE protects you against the financial hit of having to live away from home. Both homeowners and renters insurance policies will pay for abnormal living expenses if a covered peril makes your living space uninhabitable. For example, ALE will cover the cost of a hotel if your apartment is being cleaned after smoke damage. You'll be covered up to either a set dollar limit or a certain period of time, such as three months.

Medical payments coverage: Unlike personal liability coverage, medical payments coverage is on a no-fault basis, meaning legal liability does not have to be established. Both homeowners and renters insurance will cover a limited amount of medical bills for someone injured in your house or rental home. Coverage is usually set around $2,000.

What is the cost of homeowners insurance vs. renters insurance?

Renters insurance is much cheaper than homeowners insurance. This is because home policies cover everything renters insurance does, plus the cost of repairing a home's structure. The average annual cost of homeowners insurance is $2,377 nationwide, while the average for renters insurance is $173.

Why is homeowners insurance more expensive than renters insurance?

Simply put, homeowners insurance is more expensive than renters insurance because it covers more property; property that is more vulnerable to perils; and property of higher value. Specifically, only homeowners insurance covers the structure of a home. The dwelling is much more susceptible to perils than the personal belongings inside the home and, in most cases, rebuilding costs much more than replacing personal property.

The average cost to build a single-family home is more than $392,000, according to the National Association of Home Builders; the average renter's possessions are worth about $30,000, State Farm says. So the destruction of an average home in a covered event, also known as a total loss, costs much more than the total loss of the average person's personal belongings.

When an insurance company sets premiums, the calculation is based on how much they expect to pay out in claims to their entire customer base. Given that companies expect to pay much more money for homeowners' claims than tenants', home insurance is pricier than renters, on average.

Shopping for homeowners and renters insurance

Whether you're shopping for homeowners or renters insurance, you'll need to know the value of what you own to ensure you buy a policy that fully covers you. Property coverage levels are the main factor in the cost of an insurance policy. Selecting appropriate dwelling and personal property levels is an important step in getting the right balance of coverage and value.

Dwelling coverage should meet or exceed the replacement cost of your home. This will ensure you're covered for a total loss. When selecting the coverage level, it's important to understand the distinction between market value and replacement cost.

Market value is your home's selling price, but this number includes the value of the land on which the home sits and other sales costs. Replacement cost is the estimated price to build a new home of equivalent quality to your old home. There are a variety of ways to estimate your home replacement cost. Do your best to get an accurate calculation.

Personal property coverage levels should be high enough to cover the value of what you own in the event of a total loss. The best way to figure out this number is to take personal inventory of your possessions, estimating their total worth. If you are less risk averse, you may opt for coverage limits lower than the value of what you own — as long as you understand you'll only be covered for damage or theft up to the limit you selected.

Renters insurance vs. landlord insurance: Are they the same?

Landlord insurance, also called rental property insurance, is not the same as either renters insurance or homeowners insurance. A home insurance policy does not cover the risks posed by renters, so a landlord policy is needed to cover dwelling damage, a limited amount of property damage and the legal liability related to being a property owner.

Since landlords own their dwellings, they — not their tenants — are responsible for unexpected damage to their buildings. But tenants are responsible for damage to their own belongings. Given this, landlords who regularly rent out their property must buy a landlord insurance policy.

A landlord policy covers damage to the dwelling but will only cover personal property owned by the landlord that is used to service the home, such as a lawn mower or snowblower. Tenants should buy a renters insurance policy to cover their own possessions.